SunPower posts a solid 3Q, but fully valued in our view - Goldman Sachs - October 24, 2007
What's changed
SunPower reported 3Q earnings on 10/18/2007, 3 key takeaways:
(1) Solid report with EPS of $0.10/$0.33 (GAAP / non-GAAP) vs. $0.28 (non-GAAP) and $0.03/$0.28 for consensus and GS respectively driven by strong sales out of the systems business,
(2) Guidance of $1.90-$2.05 (non-GAAP) for 2008 was fairly consistent with consensus of $1.98 and slightly better than our forecast of $1.83,
(3) Capacity ramp progressing well, with Gen2 cells in commercial production.
Implications
We are updating our FY07-09 GAAP estimates to $0.21, $0.84, $1.88 from $0.05, $0.80, $2.47 in order to update for the latest reported quarter’s information and guidance. Our FY09 numbers are down mainly as a result of lower than previously forecast sales. As we find it somewhat challenging to analyze SPWR’s segment performance given current disclosure (i.e. limited data on megawatts sold, ASPs, or cost/watt trends), we’d prefer to be a bit more conservative than previously forecast – especially given the potential for over-supply in late 2008 or 2009.
Valuation
We are updating our 6-month target price to $90 from $67 given that we believe the market will continue to reward solar companies with high valuations as long as earnings are trending upwards (which we expect to continue for at least the next 6 months). Our primary valuation metric is a PEG on FY08, while also taking into account DCF analysis and P/E sensitivity analysis on forecast out-year earnings. Given that the market is pricing in most of the growth potential in our view, we maintain our Neutral ratings on the shares of SPWR.
Key risks
(1) Industry over-supply,
(2) Cost/watt trend is somewhat challenging to evaluate,
(3) Other technologies could win in certain end markets |
